MANUFACTURING |
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Optimising the value of
outsource partners
Outsourcing is a rapidly expanding market in the pharmaceutical sector and increasingly companies around the world are entrusting elements of their business operations to outsource specialists. STEVE KEMP, Business Development Director Brecon Pharmaceuticals, considers some of the reasons why
The reason for growth in the outsourcing market is in part due to the fact that many larger pharmaceutical companies have consolidated. As a consequence the desire to outsource non-core elements of their business, such as manufacturing and packaging, has increased. Over the same period there has also been the rapid emergence of a variety of smaller companies for whom outsourcing is a fundamental element of their business model.
Even where pharmaceutical companies retain in-house manufacturing and packaging activities, today’s increasingly competitive commercial environment has driven most to optimise efficiencies. Consequently, outsourcing part or all of the work to a specialist provider, is being seen an increasingly useful tool.
The drivers for outsourcing
In a plant with regular work which is ongoing and undemanding, but interspersed with sporadic or smaller run sizes of alternate products, it can often make sense to outsource the latter to maximise outputs of the former. Similarly, using an outsource provider to help deal with periods of peak demand can enable a pharmaceutical house to optimise internal performance based on even throughput, leaving the outsource provider to absorb the variation.
Another popular reason for outsourcing is to “bridge step” investments in capital equipment to cater for volume growth. While a first machine may be running to capacity, it will often be sometime before a second unit becomes fully occupied. Additional volume can be outsourced until demand grows sufficiently to justify investing in a new machine. Some pharmaceutical houses may only have capabilities in certain packaging formats. But while a product may be primarily sold, for example, in blister packs, there may also be a requirement for strip packs or bottles according to particular market needs. The volumes do not justify internal investment in equipment specifically for these packaging types, but an outsourced provider would be able to offer capacity on existing equipment.
For new product launches, outsourcing can be helpful in two respects. Firstly, internal capital expenditure can be limited to conservative forecast demand, with the contingency of excess demand being absorbed by the outsource provider, therefore minimising the risk of stock-outs after launch. Secondly, as patent protection periods effectively decline, speed to market is increasingly important. Utilising outsource providers can offer pharmaceutical houses additional capacity to enable more rapid build-up of launch stocks.
The outsourcing relationship
As the outsourcing industry matures, so does the nature of the relationship of the outsource provider with the customer. In the early days, the outsource provider was seen primarily as a back-stop or fall-back – a resource to be used only when an internal system broke down or became overstretched. In this ad hoc relationship, a number of factors characterise the way in which companies work together.
By its very nature, the decision to outsource is based on expediency. Such a decision is probably invoked when demand is unpredictable, sporadic and, more than likely, urgent. Because of the unpredictability, there are often short-notice changes to requirements, eg the need to make more, to make less, to do something different, or even to stop.
In the ad hoc relationship, the outsource provider seldom has the opportunity to optimise processes or labour utilisation. The work arrives one day, is gone the next and there is no reliable indication as to when such work will return. The outsource provider therefore copes as best as they can with the tools immediately at their disposal, to satisfy the urgent requirements of the customer.
Such ad hoc outsourcing is, and will continue to be, a significant proportion of the outsource provider’s work mix. However, many pharmaceutical companies are moving towards a more strategic view of the concept. In a strategic relationship, outsourcing becomes an integral part of a plan where the declared intention is to outsource some, or all, of the work. In such cases the outsourcing relationship is more likely to last throughout the lifecycle of the product and the requirements of the work are generally more predictable.
When outsourcing becomes an inherent part of the business model for the development of a particular product, a project team will usually be established, comprising representatives from both the pharmaceutical company and its outsource provider. This team will represent the supply chain, quality and regulatory elements of the relationship. In developing such a team, deep and broad relationships can grow between the two parties. There is a commonality of purpose and considerable time and effort is expended on creating the best solutions and procedures. A variety of personnel from each party inevitably work together to provide the range of skills required to handle all aspects of the job.
Interestingly, because of the longer-term nature of the strategic relationship, there is an incentive on both sides to optimise processes and labour utilisation. The more predictable and repeatable nature of the work encourages greater innovation, which can provide improved outputs, lower costs or both. This move towards more strategic relationships leads to a win-win situation for both parties.
Steve Kemp
Business Development Director
Brecon Pharmaceuticals Ltd.
Tel. +44 (0)1497 820829
Email: info@breconpharm.com
